Gold is approaching $2,000, but its shine won’t last, experts warn

Gold futures reached their highest point since July on Thursday, surging past the $1,970 mark.

Gold—often considered a safe-haven asset during times of uncertainty and conflict—has surged in response to mounting tensions in the Middle East. The precious metal similarly spiked during the height of the pandemic-driven market turmoil in 2020 and the Russia-Ukraine conflict in 2022.

According to Ryan McIntyre, senior portfolio manager at Sprott Asset Management, the commodity "could breach $2,000 in the near term if there is an escalation of geopolitical conflict."

"Additionally, having the Fed pause rate increases or hint at a lower probability of increases in the future would be viewed positively," McIntyre said.

Jim Wyckoff, senior analyst at Kitco Metals, seconds McIntyre. “Gold will pull back if the Middle East situation simmers down, but right now, the marketplace is expecting a further escalation,” he said.

The yellow metal has traditionally been viewed as a go-to hedge against uncertainty. However, gold’s allure as a safe haven might not last in this environment

Now is not the time to buy, analysts say

While there is optimism about gold's near-term momentum, experts are divided on the sustainability of gold's rally. Lee Munson, chief investment officer at Portfolio Wealth Advisors, has traditionally been a gold advocate but now questions its appeal.

“It used to be my baby,” Munson told Yahoo Finance. “But now is not the time to buy gold.”

He notes that despite its historical status as a "flight to safety" asset, gold's current environment is unattractive. Rising bond yields, which haven't been this high since 2007, allow investors to earn around 5% in a relatively risk-free trade—a more attractive proposition than gold, according to him.

Rising interest rates adversely impact the yellow metal

Historically, gold has performed best during times of negative “real” interest rates (or simply, when bonds don't generate enough income to beat inflation.)

However, in the current economic climate, real interest rates are positive, which is typically negative for gold.

“When you have rates like this, gold becomes very uninteresting. It just does,” said Munson. “Because I want money. I want cash flow.”

And there is a good chance that the Fed will keep interest rates higher for longer, as U.S. retail sales beat all forecasts and industrial production strengthened in September.

If the economy continues to show strong growth and inflation remains elevated, there's even the possibility of another rate hike in December.

In essence, owning gold at its current levels comes with the hefty “opportunity cost” of forgone income from investments like bonds. This cost could become more significant if the Fed maintains higher interest rates and inflation accelerates.

In such a scenario, gold investors might opt to reallocate their assets, potentially moving toward stocks or longer-term Treasurys.

"They're going to sell all the gold to buy stock," said Munson. "They're going to sell all their gold to buy 5- and ... 30-year [Treasurys]."